Obama's HAMP program 'failed miserably' at preventing foreclosures

President Barack Obama’s main foreclosure-prevention program is a failed effort that may be doing more harm than good by spreading the housing crisis over several years, lawmakers and a U.S. watchdog said today.

“It has failed and it has failed miserably,” said Representative Jackie Speier, a California Democrat, said at a House Oversight and Government Reform committee hearing on the Home Affordable Modification Program. “Unfortunately we are incapable of saying that it was a failure, it was an experiment, it didn’t work, let’s try something else.”

The HAMP program, which Obama said would keep as many as 4 million borrowers from losing their homes came under fire from Republicans and Democrats at today’s hearing after a report said only a fraction of that number has received long-term help.

Treasury officials privately estimate HAMP will lead to permanent modifications for 1.5 million to 2 million homeowners, according to the report by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program who testified at the hearing, as did Assistant Treasury Secretary Herb Allison.

“The evidence is clear: HAMP has failed,” said California Representative Darrell Issa, the panel’s ranking Republican. “One year ago, the administration told 4 million American homeowners that the Treasury Department would help them keep their homes. As of last month, the program had underperformed the administration’s projections by almost 96 percent.”

Trial Plans

Lenders led by Bank of America Corp. and JPMorgan Chase & Co. successfully converted 168,708 trial plans into permanent loan revisions as of Feb. 28, a total that Barofsky said was disappointing. The Government Accountability Office said in separate testimony for today’s hearing that 1,473 of those permanent modifications had already defaulted and that it’s too soon to tell how the loans will perform over time. Treasury said 835,000 more borrowers had received trial modification plans through the end of February.

Allison, who told lawmakers he agrees that the program must be improved, also pointed to what he said were early signs that HAMP is helping to stabilize the housing market.

“We believe that the most significant measures of success are not just how many borrowers start trial modifications or even permanent modifications, but whether families are able to avoid foreclosure,” Allison said. “The administration has made substantial progress in implementation and has seen initial signs of housing stability.”

The Obama administration never promised that 3 million to 4 million borrowers would get permanent mortgage reductions, he said. The program, which aimed to “offer” help to that many people, has dropped monthly mortgage payments on average by about $500 by lowering interest rates, extending the loan term and other changes, he said.

‘Meaningless Goal’

“This goal is essentially meaningless,” Barofsky said at the hearing. “This program will be defined and must be defined as it was to the American people, how many people receive permanent modifications and stay in their home. They’ve actually harmed the people this program was intended to help, borrowers who’ve been put in pointless trial modifications.”

Few lenders have agreed to reduce or extinguish home-equity loans or lines of credit when modifying the primary mortgage, even if the property is worth far less than what is owed, Barofsky said. Of the 113 mortgage servicers participating in HAMP, only Bank of America, Wells Fargo & Co., JPMorgan and Citigroup Inc. have signed up for a Treasury program that provides cash incentives for banks willing to reduce home-equity loans and credit lines for borrowers seeking modifications.

“Only three servicers have signed up; no second liens have been modified; it’s a year into the program,” said Eleanor Holmes Norton, a Democrat who represents the District of Columbia. “That’s beyond failure, beyond fixing. Maybe it needs to be totally rethought.” Citigroup announced its participation today, bringing the total to four.

Improvements

HAMP was designed to curb record foreclosures after housing markets began to collapse in 2007. About 2.82 million U.S. homeowners lost their properties to foreclosure in 2009 and 4.5 million filings are expected in 2010, according to RealtyTrac Inc., the Irvine, California-based seller of default data.

“We’ve spent trillions for Wall Street, this is a trickle for Main Street,” said John Taylor, president of the National Community Reinvestment Coalition. Taylor’s Washington-based group found that loan servicers tend to foreclose faster on black homeowners than white or Hispanic borrowers and are 50 percent more likely to modify loan terms for whites over blacks, according to a survey released at the hearing today.

Treasury is “very close” to announcing more changes to HAMP to help borrowers who are unemployed and who owe more on their mortgage than their homes are worth, Allison told reporters after the hearing.

“It’s not going to mean that all underwater mortgages are suddenly in the program, but there may be, could be, a modest increase in eligibility.” Allison said.